Article 6 is a key part of the Paris Agreement that allows countries to work together to achieve their climate goals or NDCs (Nationally Determined Contributions) by creating a framework for international cooperation on carbon markets and other carbon mechanism to reducing greenhouse gas emissions.
The most significant sections of article 6 are:
- Article 6.1 Invites countries to “cooperate” on implementing climate activities to achieve new levels of mitigation not available on their own.
- Article 6.2 Countries can trade credits bilaterally or multilaterally with each other.
- Article 6.4 (former CDM) Countries can purchase credits approved by a United Nations Supervisory Body (and by the seller countries), which will create standardized approaches towards measuring and producing credits.
- Article 6.8 Countries can finance non-market approaches instead of trading credits.
What is the Corresponding Adjustment
One of the most important concepts in Article 6 especially for section 6.2 and 6.4 is the corresponding adjustments.
Corresponding adjustments are necessary to prevent double counting of emissions reductions. When one country transfers emissions units to another country, the seller country must subtract those emissions units from their own emissions target, and the buyer country must add them to their target. This ensures that each emissions reduction is only counted once towards the global goal of reducing greenhouse gas emissions.
Given that, is understandable that a country should exercise caution when deciding whether to authorize corresponding adjustments.
Whether or not a country should authorize a corresponding adjustment
This decision is influenced by a number of factors, including:
- The seller country’s NDCs target ambition: seller countries have the option to delay the authorization of credits until they have successfully met their unconditional NDCs targets. Alternatively, they can demand that project developers set aside a portion of credits for potential use by the country at the conclusion of its NDCs period.
- The cost of implementing the activities: Seller countries may decide to authorize activities that are difficult or expensive to implement domestically, in order to obtain external support from project developers. In this case, the country may also set a minimum price for the credit in order to attract the necessary investment.
- The market for carbon credits: Seller countries can sell certain types of credits at high prices while buying others at lower prices. This approach assumes that all buyer and seller countries will view Article 6 as a “pure” market approach.
Nonetheless, it’s crucial to emphasize that the fundamental principle of Article 6 centers on collaboration and the elevation of climate ambition.
Certain purchasing countries might be interested in acquiring Article 6 credits to bolster their National Determined Contributions (NDCs) and support worldwide climate initiatives, even if they don’t require these credits to fulfill their own targets like Sweden and Finland. Both countries have initiated pilot Article 6 trades as purchaser, explicitly stating that they do not intend to apply these credits toward the attainment of their NDCs commitments. In conclusion, there is no one-size-fits-all approach for seller countries under Article 6. The decision of whether to prioritize NDCs targets or maximize revenue will depend on the specific circumstances of each country.
When a corresponding adjustment is not needed
Although most Article 6 credits typically require approval from the seller country, there are a few exceptions. COP 27 has introduced a new category called “mitigation contributions“. These credits can serve various purposes, including supporting results-based climate finance, domestic mitigation pricing initiatives, or price-based measures within the seller country, with the goal of reducing emissions.
These particular credits come into play when a country decides not to authorize the credits for international transfer, which means that a corresponding adjustment is not necessary. However, it’s important to note that this means that these credits cannot be used in the context of Article 6 trading. Instead, they become available for use in other markets, such as voluntary carbon markets or domestic compliance markets. Presently, only Article 6.4 credits can be authorized for use as “mitigation contribution” credit.
Article 6 grants countries the authority to approve credits for international transactions under Article 6.2 or 6.4, as well as for “other international mitigation purposes” (OIMP). These alternative purposes encompass a range of objectives, including utilization within CORSIA, domestic markets, and the Voluntary Carbon Market (VCM). For instance, even though the voluntary carbon credits standard does not require a Corresponding Adjustment (CA), they plan to introduce a process for labeling credits that have undergone CA. This step is necessary for offsetting the initial phase of the CORSIA scheme for instance.
The choice of whether to mandate authorization, and consequently, a corresponding adjustment, for these alternative purposes is left to the discretion of each countries.
Certain nations may enforce a rule where all carbon credits, whether intended for international buyers for voluntary or compliance purposes, must go through a corresponding adjustment process. The Bahamas’ Climate Change and Carbon Market Initiatives Act of 2022 serve s as an illustration of this requirement.
In contrast, countries like Ghana take a different approach by stating that VCM projects are not obliged to undergo a corresponding adjustment. However, they provide the flexibility for project developers to request one if the buyer wishes to have a CA.
Additionally, other countries might require a CA if the ultimate buyer intends to use the credits for offsetting claims. However, credits utilized for “mitigation contribution” or “beyond value chain mitigation” claims may not necessitate a corresponding adjustment.
Currently most countries have not yet given clarity around their intention of requiring authorization for VCM credits, as they need additional information, including capacity building and risk assessments, before deciding on corresponding adjustment options. This option also results in the risk for project developers, traders and buyers as a later decision could impact multi-year sales agreements.
What to expect from the next COP 28
At COP 28, countries will prioritize these Article 6 aspects:
- Operationalizing Article 6.2 and 6.4: Finalizing rules for international emissions unit transfers, including tracking and ensuring single-count accountability.
- Supporting Sustainable Development: Ensuring Article 6 aids sustainable development in developing nations, with equitable benefit sharing and alignment with sustainable development goals.
- Preventing Double Counting: Developing safeguards to maintain the global carbon market’s credibility and verify genuine and additional emissions reductions.